The author is a Forbes contributor. The opinions expressed are those of the writer.

Loading ...

Loading ...

This story appears in the {{article.article.magazine.pretty_date}} issue of {{article.article.magazine.pubName}}. Subscribe

Image via CrunchBase

Microsoft needed a great Christmas season. After years of product stagnation, and a big market shift toward mobile devices from PCs, Microsoft's future relied on the company seeing customers demonstrate they were ready to jump in heavily for Windows8 products - including the new Surface tablet.

Looking deeper, for the 4th quarter PC sales declined by almost 5% according to Gartner research, and by almost 6.5% according to IDC. Both groups no longer expect a rebound in PC shipments, as they believe homes will no longer have more than 1 PC due to mobile device penetration, a market where Surface and Win8 phones have failed to make a significant impact or move beyond a tiny market share. Users increasingly see the complexity of shifting to Win8 as not worth the effort; and if a switch is to be made, consumer and businesses now favor iOS and Android.

Microsoft makes more than 75% of its profits from Windows and Office. Less than 25% comes from its vaunted servers and tools. And Microsoft makes nothing from its xBox/Kinect entertainment division, while losing vast sums in its on-line division (negative $350M-$750M/quarter). No matter how much anyone likes the non-Windows Microsoft products, without the historical Windows/Office sales and profits, it's hard to see how long Microsoft can remain sustainable.

What can we expect next at Microsoft?

Ballmer appears to have committed to fight to the death in his effort to defend & extend Windows. So expect death as resources are poured into the unwinnable battle to convert users from iOS and Android.

As resources are poured out of the company in the Quixotic effort to prolong Windows/Office, dividends should steadily diminish.

Expect substantial layoffs over the next 3 years. They could even reach 50-60%, or more, of employees.

Expect closure of the long-suffering on-line division in order to conserve resources.

The entertainment division could be spun off, sold to someone like Sony or possibly Barnes & Noble, or dramatically reduced in size. Unable to make a profit it will increasingly be seen as a distraction to the battle for saving Windows, and Microsoft leadership has long shown it doesn't know how to profitably grow this business unit.

As more and more of the market shifts to competitive cloud infrastructure Apple, Amazon, Samsung and others will grow significantly. Microsoft, losing its user base, will demonstrate its inability to build a new business in the cloud, mimicking its historical failures with Zune (mobile music) and Microsoft mobile phones. Microsoft server and tool sales will suffer, creating a much more difficult profit environment for the sole remaining profitable division.

Missing the market shift to mobile has already forever tarnished the Microsoft brand.

No longer is Microsoft seen as a leader. Instead it is rapidly losing market relevancy as people look to Apple, Google, Amazon, Samsung, Facebook and others for leadership. The declining sales and lack of customer interest could lead to a tailspin at Microsoft not unlike what happened to RIM. Cash will be burned in the struggle to save what Microsoft sees as the core of the company.